Moody’s has told MBIA Inc. that it will consider downgrading bond-insurer National Public Finance Guarantee Corporation, parent-company MBIA Inc. and sister-company MBIA Corp.
Moody’s action comes as a response to an MBIA Inc. action on Nov. 7 and a Bank of America counter-action on Nov. 13.
On Nov. 7 MBIA announced it is seeking to change the terms for notes it issued. It is seeking to substitute National as the “restricted subsidiary” in its 1990 indenture and “principal subsidiaries” in its indenture (“senior indenture”) from 2004. It is seeking the consent of the note holders for these changes. It is promising to pay $10 per $1000 principal amount to all consenting note holders.
On Nov. 13 Bank of America made a tender offer for one group of the notes, senior notes due in 2034. Bank of America offered to buy the notes at their face value, even though they have been trading at 63 cents on the dollar, according to The New York Times. Effectively, Bank of America offered more than $100 million over the market value for the bonds.
“Bank of America’s tender offer seeks to obtain ownership of at least 50% of one series of MBIA notes in order to block MBIA’s consent solicitation,” Moody’s Investors Service senior vice president David Fanger and vice president Helen Remeza wrote in a report released Monday. “Doing so would sustain the growing pressure on MBIA stemming from the ongoing weakness at MBIA Corp. We believe Bank of America’s tender offer is based on a view that the more pressure it puts on MBIA, the more willing MBIA will be to settle on terms that are favorable to Bank of America.”
MBIA Inc. and Bank of America are struggling against one another on multiple legal fronts. MBIA Inc. is seeking billions of dollars from Bank of America in connection with defaulted mortgages that were issued by Bank of America’s subsidiary Countrywide. MBIA Inc. lost large sums of money when it had to fulfill guarantees on mortgage backed securities based on Countrywide issued mortgages. MBIA has claimed that Countrywide misrepresented the quality of the mortgages when it got MBIA to insure the securities.
“In connection with the consent solicitation, MBIA is hereby disclosing that it has been advised by Moody’s that Moody’s expects to convene a meeting of its ratings committee in the near future to consider the ratings of MBIA, MBIA Corp. and National Public Finance Guarantee Corporation in light of recent developments, including the [Bank of America] tender offer, and that the committee may lower the ratings of one or more of these entities,” MBIA Inc. wrote in a statement filed with the U.S. Securities and Exchange Commission Monday afternoon.
Currently, Moody’s gives MBIA Inc. a B2 rating, MBIA Corp. a B3 rating, and National a Baa2 rating. Until today Moody’s had a negative outlook on the first and last of these ratings. Moody’s had the second on review for a downgrade.
Moody’s did not respond to a request from the Bond Buyer to confirm MBIA Inc.’s statement to the SEC and clarify as to whether MBIA Inc. and National can now be said to be on review for downgrades.